Banks may require higher recapitalization on mounting losses

Mumbai, February: Public sector banks are likely to require higher amount of capital from the government as part of the recapitalization process in the next financial year as mounting quarterly losses erode the capital base of public sector lenders.

According to rating agencies, profitability of banking industry would be affected by around Rs 30,500 crore in FY18 on the back of quarterly losses reported by most public sector banks in the last few quarters.

Sudden spike in government bond yields in the last few months had resulted in huge losses in treasury income of public sector banks. This had in turn pulled down net income of these lenders.

“Public sector banks (PSBs) would continue to report losses in FY18. The large losses emanating out of the quick rise in bond yields especially in the last six weeks will result in large mark-to-market losses on lenders’ non held-to-maturity investment holdings. This will lead to a considerable fall in the banking industry’s treasury income in the last quarter of FY18 with a spillover effect in FY19,” India Ratings and Research said in a note.

According to a report by CARE Ratings, the banking sector has reported a collective loss of over Rs 4,200 crore for the quarter ending December 2017.

While country’s largest lender, State Bank of India posted a surprise loss of Rs 2,416 crore in the third quarter, IDBI Bank reported a fifth straight quarterly loss of Rs 1,524 crore during this period. Similarly, Central Bank of India had reported Q3 loss of Rs 1,664 crore and UCO Bank had reported its 9th consecutive quarterly loss of Rs 1,016 crore for the period ending December.

According to India Ratings, banks may also require up to Rs 89,000 crore towards incremental provisioning for advances while transiting to the Ind-AS 109 regime.

Against this backdrop, the government’s move to infuse up to Rs 2.11 lakh crore of capital may see upward revision in the coming year.

Last month, the centre has announced to infuse Rs 88,139 crore in 20 public sector banks during the current financial year with IDBI Bank getting the highest amount of Rs 10,610 crore.

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